What To Do With Your 401k When You Leave a Job: Option One

Deciding what to do with the money in your old 401(k) account is an important decision, and it begins with understanding your options.

When you change employers or retire, it’s important to understand your options regarding the retirement savings you have in your former employer’s 401(k) plan. You’ll typically have four options:

1.    Roll over your money to an IRA

2.    Roll it over to your current employer’s 401(k) plan

3.    Leave it where it is or

4.    Cash out your account

The first three options preserve the tax benefits associated with your savings and avoid current taxes and early distribution penalties, But there are differences among all of the options, and those differences can have a big impact in certain situations.

This post describes the implications of option #1.    

Roll over your savings to an IRA

You may gain access to a wider range of investments. If you want to expand your investment choices beyond the ones offered by your former or current 401(k) plan, an IRA may be the way to go. IRAs typically offer thousands of investment options, including mutual funds, exchange-related funds (ETFs), stocks, bonds, certificates of deposit (CDs), and more.

Your savings may be easier to manage. If you have retirement accounts with a few former employers, consolidating them in an IRA may make it easier for you to manage your retirement savings. Instead of several statements to review each month, there may just be one, making it easier for you to assess the overall performance of your investments.
You can avoid RMDs with a Roth IRA. Beginning at age 70 ½, you generally must start taking annual withdrawals, known as required minimum distributions (RMDs), from all of your retirement accounts, with the exception of Roth IRAs. Roth IRAs do not require account owners to take RMDs at any age. So, if you have Roth savings in a 401(k) plan, where they are subject to RMDs, transferring them to a Roth IRA gives you the freedom to make withdrawals at  your own pace – or to not make any withdrawals at all.

Need assistance sorting all of this out? Contact Copper Leaf Financial. With offices in Rutland and Williston, Vermont we develop a customized wealth management plan designed to integrate every aspect of your financial life. Call us today at 802.878.2731 to schedule a strategy session and begin building your road map to financial success.

Article published in January 2020 edition of Eye on Money. If you would like to be added to our mail list please email jennifer@dh-cpa.com.